One Stop Systems, Inc.

And thank you for joining us today to discuss One Stop Systems financial results for the fourth quarter and full year ended December 31st, 2021. With us today are the company's president and chief executive officer, David Rahn, and chief financial officer, John Morrison, as well as the company's chief sales and marketing officer, Jim Isen. Following the remarks, we will open the call to your questions. Then, before we conclude today's call, I will provide some important cautions regarding the forward-looking statements made by management during the call. I would like to remind everyone that the call will be recorded and made available for replay in the Investors section of the company's website. Now I would like to turn the call over to OSS's President and CEO, David Rahn. Please go ahead, sir.

Thank you, Jenny, and good afternoon, everyone. In 2021, we successfully set new records on many financial fronts, including nearly 20% growth for the year. Our second and third largest customers in the high margin military space grew over 50% each, while our largest customer in the media and entertainment space more than doubled year over year. Breszner, our European division, contributed annual growth of 29%, bringing our total annual revenues to a record $62 million. In the fourth quarter, our largest customer outperformed by over three times its revenue from a year ago. This elevated our revenue 700K over our guidance to 17.8 million, representing an increase of 11% over the previous quarter and 28% over the same year ago quarter. Among all the annual company records that we set, the fourth quarter revenue is a good news story with a caveat. The higher revenue sources temporarily made us overweight on lower margin product mix than in the previous three quarters, yielding a 28% gross margin for the quarter. Nevertheless, we expect this to return to normal historic margins during the current quarter. Our 2021 top line performance generated net income totaling $2.3 million compared to being about break-even in the previous year. And our adjusted EBITDA increased nearly 300% to $4.9 million, approximately 8% of total revenue. These were all company records. More importantly, in 2022, we have seen an acceleration of AI transportable activity. Before I provide additional information on our exciting progress, and our outlook for the rest of the year. I'd like to turn the call over to John Morrison, who will take you through the financial details for the quarter and the year, followed by Jim Eisen, who will provide insight into some of our major program wins, discuss our edge AI products, and our marketing efforts focused on our AI transportable story.

John?

Thank you, David. And good afternoon, everyone. Thank you for joining us today. Earlier today, we issued a press release with our financial results for the fourth quarter and year-end December 31, 2021. The release is available in the investor relations section of our website at onestopsystems.com. We achieved fourth quarter revenue of $17.8 million. which was up 11% from the third quarter and up 28% from the same year-ago period. Our core OSS business revenue increased 29% to $11.5 million as compared to the same year-ago quarter with revenue from Breschner, our European division, increasing 25% to $6.3 million. The increase for Breschner was tied to capitalizing on planned strategic inventory purchases during a time of constrained product availability. Gross profit in the fourth quarter of 2021 totaled $5 million as compared to $4.8 million in the year-ago quarter. Gross margin for our OSS business decreased 8.8 percentage points from the same year ago quarter to 33.2% due to the increase in media and entertainment revenue as David previously mentioned. Reznor gross margin decreased to 19.4% in the fourth quarter compared to 21.3% in the same year ago quarter due to increases in fourth quarter reserves. Gross margins were 28.3% in the fourth quarter compared to 34.5% from the same year ago quarter. We expect quarterly gross margins to return to normal this quarter. Our overall quarterly operating expenses increased 19% to 5.1 million, while operating expenses as a percentage of revenue decreased to 29% compared to 31%. in the same year-ago quarter. This increase in operating expenses was primarily due to the addition of key sales and marketing personnel focused on AI transportable, accelerating trade show activity, and related travel. As referenced by David, though the company had record profits for the year, there was a loss from operations of $71,000 in the fourth quarter compared to income from operations of $513,000 in the same year-ago quarter. Net loss for Q4 on a GAAP basis totaled $386,000 or a loss of two cents per share. This compares to prior year Q4 net income of $244,000 or one cent per share. On a non-GAAP basis, net income was $71,000 or zero cents per basic and diluted share in the fourth quarter as compared to $636,000 or four cents per basic and diluted share in the same year-ago period. Adjusted EBITDA, another non-GAAP metric, was $620,000 or 3.5% of quarterly revenue as compared to $1.1 million or 8% of quarterly revenue in the same year-ago quarter. Now, turning to our results for the full year 2021. Revenue increased 19.4% to a record $62 million. Our core OSS business increased 14%, contributing $38.5 million of total revenue, with Breschner contributing revenue of $23.5 million an increase of 29% for the year. Our overall gross profit improved 3.2 million to 19.6 million or 31.7% of revenue. This compares to 16.4 million or 31.7 million of revenue a year ago. Gross margin for our core OSS business decreased slightly to 36.9 million in 2021 as compared to 37.3% in the prior year. Meanwhile, Breschner gross margin increased to 23.1% as compared to 21.2% in the prior year. Our total operating expenses for 2021 increased 6% to $17.9 million. This increase is primarily due to increased marketing and selling expense which was partially offset by decreased research and development expense due to the application of labor costs to cost of sales, as well as lower general and administrative expenses. This was expected as we invested in sales, trade shows, and marketing. Operating expenses as a percentage of revenue decreased 28.9% compared to 32.5% in the prior year. reflecting optimization of expenses and ongoing cost containment efforts. Income from operations increased $2.2 million to $1.7 million compared to a loss from operations of $424,000 in the same year-ago period. Net income on a GAAP basis was $2.3 million or $0.12 per diluted share compared to a loss of $7,000 or 0 cents per share last year. Net income included 1.5 million in PPP loan and interest forgiveness. Non-GAAP net income totaled 3.1 million or 16 cents per diluted share as compared to 1.4 million or 8 cents per share in 2020. Adjusted EBITDA totaled 4.9 million or 7.9% of revenue compared to 1.8 million or 3.5% of revenue in 2020. Both of these non-GAAP measurements exclude the PP loan and interest forgiveness. Now, turning to our balance sheet. On December 31, 2021, cash and cash equivalents total 5.9% $1 million with short-term investments of $14.5 million for a combined total of $19.6 million in capital reserves. Cash provides the stability and flexibility to be responsive to changes in the business and climate, including strategic inventory investments during supply chain constraints. This compares to cash and cash equivalents and short-term investments totaling $18.5 million on September 30, 2021. This completes our financial review. I would like to now turn the call over to our Chief Sales and Marketing Officer, Jim Isen. Jim?

Thank you, John, and good afternoon, everyone. During 2021, we fortunately began to migrate away from virtual meetings to some in-person events, enabling us to better interact with our target customers. In Q4, we exhibited at AUSA with a focus on U.S. Army customers and prospects using AI in rugged edge environments. We also exhibited at SC21, where we targeted both commercial and government AI transportable prospects and launched our flagship platform, Rigel. Our rugged Rigel edge supercomputer is the most compact, air-cooled, GPU-accelerated server solution and is ideally suited for deployments in confined mobile spaces within the AI transportable market. These include the cabin of autonomous vehicles, within mobile command centers, under seats of helicopters, or in an aircraft equipment bay. In the fourth quarter, we recorded six new major program wins. Each of these program wins are expected to yield at least $1 million in revenue within the first four years, and they include medical, commercial aerospace, and mobile command center applications. In addition, based on the expertise of our design and engineering teams, we won our first PCI Express Gen 5 program, which will springboard our core product lines into the new PCI Express Gen 5 era later this year. These wins brought our total major program wins to 14 in 2021, of which five were for AI transportable solutions. The 14 wins contributed revenue in 2021 of $8.5 million, about 25% greater than the previous year. Complementing our new product lineup, John mentioned our investments in additional marketing and salespeople. These enhancements and a team of well-positioned manufacturers' reps are paying off. Our pipeline of major programs has expanded to a record 29 pending wins, More than 50% of these opportunities are new AI transportable applications with strong activity and autonomous trucking and military aircraft. I'm more excited about the current sales trajectory of OSS than at any time in its history. Now I'd like to turn the call back over to Dave.

Thank you, John. And Jim, I share your enthusiasm. When I took over this role as CEO two years ago, I recognized there were changes that needed to occur to strengthen our cash position, accelerate our growth, and profitability. In 2020, after the leadership change, we successfully improved the balance sheet for sustainability, sought out new independent members for our board of directors, and established a culture of accountability to drive performance, resulting in a stronger foundation. In March of 2021, we announced our multi-year AI transportable strategy focused on a fast-growing segment of edge computing. This part of the market leverages our core engineering technologies and manufacturing strengths as we deliver performance without compromise in some of the most challenging environments. Our unique capabilities enable AI applications in autonomous vehicles and other mobile platforms. If it moves on land, in the air or at sea and needs high performance, according to our growing customer base, we fulfill that need better than anyone else.

In that regard, I would like to provide an update on the execution of our strategy.

We previously identified 16 vertical markets within the commercial and military segment. Today, I'd like to highlight one of these, autonomous trucks. There is significant activity in the space because of the compelling economics. Unlike a personal autonomous car, autonomous trucks have an immediate measurable ROI. This combined with a growing shortage of 60,000 truck drivers is fueling billions of dollars of investment by companies like Amazon, Walmart, UPS, and long haul shippers. This demand is attracting entry of many other well-known players in the industry. Similar to an airplane, which only makes money when it's flying, a truck needs to be on the road to do the same. Trucking companies want to keep their trucks carrying loads up to 24 hours a day, rather than the current average of 11 hours. Initially, this will cut the number of required drivers in half, shorten the time to traverse the country from four to two days, lowering costs and increasing profitability. The current demand is such that a fully autonomous truck is not required for trucking companies to begin to reap economic benefits. Several companies have started with a human-guided convoy that involves one driver and two trucks. One leads and the other one follows autonomously. In other words, the second one does not have a person in it, resulting in the doubling of the cargo. At the autonomous level, on level four and five, The first deployments are referred to as hub to hub, in which autonomous trucks are only driven on the highway, but ultimately they will drive dock to dock, including city streets. One of the reasons I share Jim's enthusiasm is that our products have already enabled autonomous trucks to drive hundreds of thousands of miles to date. Though we initially started with just one customer, we immersed ourselves in the marketing requirements tied to AI transportables and responded with new products leading to recent engagements of multiple key players. This is a perfect example of an escalating market that demands performance without compromise, leveraging our latest AI technologies in a harsh environment requiring ruggedization, unique power, cooling, form factors, and quality. Based on our multiple engagements, our customers have confirmed not only we have the best solution, but they've told us we have the only solution. These rewarding discussions validate our vision of providing superior, ruggedized compute and storage products for these demanding environments. Quite frankly, in addition to the revenue opportunities, we're excited to be in a position to positively affect a strategic national need. With that as a backdrop, Our objective is to be the leader of ruggedized compute and storage products for autonomous trucks, further validating the AI transportable strategy. This market is extremely attractive to one-stop systems because it is developing quickly with estimates of over 16,000 level four trucks next year, 100,000 in 2025, growing tenfold to a million trucks a year by 2030. resulting in a TAM of over $500 million next year growing to $75 billion. By 2030, it is expected autonomous trucks will be the majority. A typical system for these trucks includes cameras and sensors around the vehicle, high-end rugged and storage platforms in the cab in the former sleeping area, along with all the AI software, which tends to be the greatest value add and differentiation between the different autonomous truck companies. Along with this comes significant challenges with power supplies and cooling, in addition to making sure the systems survive this harsh environment. As you can see, this opportunity could be a company changer for OSS. We have multiple engagements where major players in the market are taking delivery of compute and storage systems today. We expect the prototype quantities alone will drive multiple new top 10 accounts in the short term later this year and next. Our intention is to leverage our growing presence, become the experts in the market, build additional barriers of entry, and do everything we can to be the leader and supplier of systems for production. This opportunity is much larger than anything the company has pursued before, but we have the right people, skill sets, products, and know-how. To say the least, it's an exciting time at One Stop Systems. I'm getting a little choked up. Moving on to Q1, and consistent with prior years, the first quarter reflects some seasonality. Our revenue outlook is $16.8 million for the first quarter. which represents 26% growth over the first quarter of last year. One of the things you notice in the chart is that over the last two years, we've been able to eliminate some of the seasonality and create some more predictability. Now with that, I would like to open up the call to address your questions. Jenny?

Thank you. If you'd like to ask a question at this time, please press star followed by the number one on your telephone keypad. And if you're calling from a speakerphone, please make sure your mute function is turned off to ensure your signal can reach our equipment. Again, star 1 to ask a question. And we'll go first to Scott Searle with Roth Capital.

Hey, good afternoon. Thanks for taking my questions. Really nice to see the autonomous vehicle opportunity developing so quickly. Maybe to jump right in, John, you know, in terms of I wanted to zero in on the comment on gross margins returning to normal. I just wanted to clarify what that means in the first quarter because there has been seasonality in the past. You guys have been smoothing out the model a little bit so that there's less seasonality. So when you say normalized gross margins, is that from two years ago or one year ago where we were kind of in the first quarter? And then I guess as part of that, kind of how you're thinking about the mix both with Bresner and some of the other Tier 1 accounts that you have.

Thank you, Scott, by the way. I appreciate you participating in the call today. Our gross margin percentages will be consistent with our annual margin for last year in the first quarter with an opportunity to grow over the year. Much of this margin change was attributable in the fourth quarter to the dominance of our media and entertainment customer who typically we have nearly a one-to-one ratio between our lower margin customers and our higher margin customers. Our lower margin media and entertainment customer outperformed 1.7 times what they normally did compared to our other revenue base. And so that was the consequence of the margin for the fourth quarter. But we do anticipate it will be more consistent with our annual gross margin percentage for the first half of 2022.

Perfect. So we're bouncing right back up over 30%. Then, you know, we didn't really talk about disguise, but just, I guess, a little bit on the mundane front there. Disguise is really being driven in, I guess, in 2020 and 2021 by more virtual opportunities. When do you see live events coming back for that to drive a larger core base, if you will, on that front?

They're starting to see that now, so we're starting to. So it's finally starting to happen, Scott.

Great. And then lastly, if I could just kind of dig in a little bit more on the autonomous vehicle opportunity. Dave, I wanted to clarify, you threw out a couple of numbers there. I think next year you said a $500 million TAM and then 1 million trucks as we get closer to 2030. The TAM that you're talking about is specific to you and your dollar content opportunity within that market. Is that correct?

Now, this is third-party data. It's really what the total solution will sell for. But if you look at what that will sell for, like if somebody buys a $150,000 tractor, which is the thing that pulls a truck, and it will be like an option that they pay for. But that will be a pricey option that can be justified because of the investment. But then the cost and the things going in there, the big ones really are the sensors, LIDAR, radar, and then the compute and storage systems. And so, you know, what we're so excited about is it's a very large number. You do any of the math with it and we're getting very positive feedback. So we just have to drive this one hard.

Great. And, and lastly, just maybe if you could talk a little bit about that, just, you know, in terms of the gross margins that you expect in some of the autonomous vehicle applications, Are they greater or less than kind of where you had the corporate average for 2021? And when you expect this to become, I'll call it more meaningful, I think Jim indicated that new opportunities were $8.5 million last quarter. Maybe give us some sort of indication of how you're thinking about both new opportunities in 2022. It sounds like it grew 25% or so in 2021. How big that could be in 2022, and how large of a component will see autonomous vehicles contributing on that front? Thanks.

I think it's a material amount in 2022, and it could be something that radically changes the profile of the company in future years, just by the dynamics of it. As far as the content and the TAM related just to our business, I'm working on that. I did not want to provide that before I was totally comfortable with it. But it is a big number. It's a big numbers guy.

Gotcha. Maybe...

I was going to clarify the $8.5 million was not last quarter. That was last year's WINS contribution to last year's revenue. So we're getting immediate revenue from these WINS.

And they continue, you know, year after year, the same, because most of our things last four years or more.

Maybe, Dave, if I could throw one more out there. The guidance for the first quarter is, you know, 25%, 26% growth year over year. Granted, it's coming off of somewhat depressed numbers, but should we be thinking about growth for the year? I think you talked about 15% in the past. Is it closer to 15% or is there an opportunity for that to be inflecting as we get into the latter portion of 22? Thanks.

Yeah, I think the number we should use right now is 15 and hopefully we'll beat that and the second half of the year we could have some nice surprises in it. Our objective, as you know, to get that up quite a bit in 2023.

Great. Thanks so much. Thank you. Thanks, Scott.

And we'll go next to Eric Martinuzzi of Lake Street Capital.

Yeah, congrats on the quarter. I wanted to ask about your greater than 10% customers just on an annual basis. How many did we have?

10% would be three, right? So three or two.

Okay.

And then the gross margin mix that you had in Q4, obviously it was skewed kind of towards that median entertainment. Is that the expectation for Q1? We've got a good solid revenue number here that bounced back. Is that to say that we have less median entertainment or a more normalized mix?

I would say a more normalized mix.

And then as far as the impact of world events on military budgets, is that anything that would impact you all as far as just redeployment of budgeted dollars, or are you kind of advanced platforms, advanced programs that are relatively immune to any shifting of military budgets?

So far we haven't seen anything that would be negative, but there's some signs maybe there's some positive because of, you know, equipment being used. And then the whole thing on the AI transportable front, that's priority number one with all the armed forces, so budget cuts aren't hitting that.

Okay. If I look at the 29 opportunities that we've got here, for the current pipeline. I think your comment was over 50% of them are AI transportables. Those AI transportables, what can you tell me about the use cases here for those, let's call it 15 opportunities?

I'd say the biggest number of them are in autonomous trucks and in military aircraft. And it drops down after that, but what we're finding is just some, the autonomous truck market, for example, by itself could be huge. But we're seeing a similar thing materialize in farming and mining, but we're not anywhere near as far along with those. But they could be large markets down the road for us also as they go to this level of sophistication.

Okay, and then as I look back on 2021, we had roughly 8% adjusted EBITDA margins on the $62 million of revenue for the year. You talked about growth of roughly 15%. What should we be thinking about for a full year profit margin on that incremental revenue?

Yeah, I mean, longer term, our target is in the 15% area. I think this year, because of investments that we're making in AI Transporter, especially in the areas we talked about, it's probably going to stay in the 8% area. We looked at this hard, thought about getting it to 10%, but we'd be starving a market that could be very large if we did that. So we'll figure about 8%.

Okay. All right. That's very helpful. Thanks for taking my questions.

Thank you, Eric.

We'll go next to Joe Gomez of Noble Capital.

Thanks. I was wondering, you know, maybe you could talk a little bit, Bresner, John, maybe you could clarify what you were talking about on the reserves and also that

segment had a lot of good growth in in 21 are you expecting it similar are you for 22 or for that segment to have a grow at a lower rate in 22 so we in the past we've always positioned Breszner as a value-added race reseller and typically those types of business draw to four or five percent typically however Breszner is continuing to be repurposed and refocused on adding products such as the OSS product line in Europe and we now have some dedicated personnel there who are selling OSS products as well as the management there has been moved from the legacy manager to our new our manager who's been there a long time but he's been unleashed and he is really growing revenue and also tasked with growing margins there So we anticipate that he will grow at a clip in excess of his basic 10% growth target that he has for next year. And he will be focusing on increasing the margins there. With respect to the fourth quarter, some of this had to do with inventory reserves that you have to take a look at, make sure you don't have anything of obsolescence, and also an increase in warranty reserves. as we took a look at the fourth quarter and wanted to make sure we had everything trued up to have a good closing on the year.

If I just add to that, you know, to one of your questions, we expect for the plan and look at the forecast that the OSS part of the business would grow more than the Breschner part in 22.

Okay.

Thanks for that. And you talked, you know, you've been attending a number of major trade shows here and wondering if you could give us a little color as to how that is translating into interest or new contracts, new programs, just trying to get a little better understanding as you get back to these live events what impact it may have going forward.

So we're really focusing on the autonomous truck market, autonomous vehicle market. So you'll see the trade shows we do in this year, AUVSI, ADAS, those are all autonomous driving type things, really to, you know, we've penetrated this market and really expand our presence in that market. Since we've really focused on hunting those particular customers, this is going to just accelerate that. And it's really to keep the current relationships fresh. We're even leveraging some of them to do cooperative events inside of those shows. And that will just lend more credibility to all of our validation to our strategy and where we're going with other potential customers.

Yeah, I'd add to that, you know, in the spirit of hunting, lot of the autonomous truck expansions happen from us just identifying who's in the space and going and talking to them and we're just finding that they really need what we have so it's been very exciting okay thank you for that and part of me obviously one of the key topics these days remains you know the supply chain and supply chain challenges and

Just wondering how you guys are dealing with that, where you stand in terms of inventory. Are you able to fill products in a timely manner, or is there any particular issue that you're seeing out there on the supply chain?

Always, every day, every minute of the day. So we've faced this all year long. I think we've done a pretty good job of managing through it. We'll continue to do the best we can. We haven't seen any let-up. We started to a little bit, and then the Ukraine war broke out, and we're getting comments about the industry, supply issues with semiconductors, some of the key gases in the processing will be a shortage because of it. So there could be more dynamics coming down the road for the whole world. So we're just doing the best we can. We purposely are running higher inventory levels since we have the cash to do that, and that's helped us a lot. But I can tell you, you know, yesterday we talked about three different deals, right? Right. It's like good news, bad news, and all over the place.

Yeah, maybe to clarify just to get more detail on that, we are probably looking at probably an additional $2.5 million investment in the inventory to ensure that we have the supply chain available to fulfill orders. So we're doing what is necessary. There are strategic buys that are tied to orders, so these are not speculative buys. but it is to ensure that we are able to fulfill the backlog that we have in place.

Okay, thanks for that clarification. And one more, if I may. You know, in the past, you know, you guys did do some M&A. You kind of stepped back as you were implementing the new playbook here. Just wondering, you know, kind of what's your thoughts or outlook here, again, on in terms of the M&A space and the M&A environment and where you would be looking if you are, what kind of areas would you be looking at to potentially expand through that?

Yeah, so when we talked last time, which was four months ago, I believe what I told people is that we were starting to pick that up. I was primarily driven by myself looking at it. I guess one of the questions, you know, we're still doing that, but one of the questions that come to mind with me is if that distracts getting totally immersed in this market that looks very attractive, I've got to rethink that. So if we do anything, we're going to do it real careful. The focus may shift a little bit, but we're not working on anything that's eminent.

Okay, thanks for that. Thanks for taking my questions, guys. Thanks, Joe. Really appreciate it.

We'll go next to David Williams at Benchmark.

Hey, good afternoon, and I appreciate the time. Congrats on the progress. Thanks. Yeah, I want to ask first maybe just about the customer base. And at CES, the trucking industry, at least the autonomous side, was on full display. Something like that's an area that's gained a lot of activity. I'm just kind of curious if you'd maybe talk us through any of your customer base. Are they at the OEM level, ODM level, just kind of maybe where you're seeing that demand? and then how you're thinking about that, your ability to meet the demand that you see in front of you.

Yeah, so I would say we're engaged with, like I said, multiple players, well engaged. These are some of the big names that you'll hear if you do a search on it, and they tend to be companies. A lot of them are new name companies that are focused on that, and almost all of them have partnerships with somebody. A partnership might be with, you know, a Peterbilt. Another partnership might be with a large trucking, you know, manufacturer. Another one's with, say, an Amazon. And Walmart's got their partner. So that is the quality of these companies we're engaged with. These are guys and, you know, they're getting orders even for the future. These are real deal companies. And there's different business models. I think one of the most common ones would be that they – ultimately let the Peterbilt or somebody like that offer this as an option when the trucker's buying his truck. That's what we're seeing.

Okay, fantastic. Thanks. Any way to maybe size up the unit ASPs on the trucking side as we kind of think about the volumes there? Any dollar figure that we should be thinking about?

Well, I'll answer it this way. Our systems typically range that we sell to companies from $10,000 to $1 million. And we're not at the bottom of that. We're surely not at the high end of it. But there's enough zeros there that makes it very attractive. We're not competing at some low-end server or something. These are the highest-end things, so they come in at a pretty high price tag. At this point, I don't want to expand too much more on that, but I'm planning on providing more color eventually on that. What I'll say right now is it's more than $10,000 and it's less than $100,000 per truck.

Okay, but less than $100,000. Oh, that's perfect. Thanks for the color there. And then maybe from a gross margin perspective, and I understand the impact this quarter from the media and entertainment. And you've noticed this segment was strengthening a bit. And as we just kind of think about that segment, what's your comfort level that maybe through this year we won't have another outsize kind of pull in from that segment? We could see another maybe margin impact like we saw this quarter. Do you have ability, I guess, to optimize that? And what are you doing maybe internally to control that potential? The potential of it growing too big or the potential of it shrinking? No, I'm sorry. The potential for it to have an outsized impact and we see another deflection in the gross margin.

Well, I mean, the company, the space is doing well, continuing to grow. We expect them to continue to grow, but we also expect our other business to. It is true that if they have a blowout quarter and maybe we're just a little bit off on some of the other ones, the mix could be a little odd, but I think I would hope what people would see through that is what are we doing overall, what the overall numbers look like, and what progress we're making on the AI transportable front. So there's always a risk if we had a really big blowout quarter.

And how do you think about that business over time? Is that something that you might be able to limit maybe a little bit there, pull the gross margin up some that might help eliminate some of that quarter-to-quarter volatility mix? our objective is to get the business to 40% which means that you know new business we're taking you know they got transportable and stuff it's more aligned with that okay that's fair and then one just one last one for me quickly is this trucking opportunity it seems like it developed very very quickly And you guys have done a good job of capitalizing on that. I'm just wondering if there's other trends out there similar to this that you're seeing that maybe we're not thinking of that you're seeing in front of you that could have a similar, I guess, revenue upside or opportunity for you.

Yeah, you know, there's definitely multiple ones. But the one that's kind of analysis to this one, in my opinion, is what I mentioned earlier, and that's farming and mining. Both these industries have, you know, they might have a $200,000 to a million-dollar piece of equipment, and you can benefit the same comment I made about trucks and airplanes. You can have it in an autonomous mode. That million-dollar tractor, for example, running 24-7, and the mining equipment, a similar thing. There are some autonomous features with these things now, but they're not to the level that we're talking about. They're more like somebody's room with a steering wheel driving it, kind of like a remote control car, but where they're ultimately going is full autonomy in those markets. So we're trying to learn on them, but I'm also not trying to, I don't want to waste too much time there when I've got one that we need to just get our hands all around real quick. Thanks so much for the call.

Yeah, real quick on that last one. This isn't something that just came out of the woodwork. I mean, as you know, we announced the strategy on AI transportables in March of last year. So we've been developing this over a year period of time, establishing our expertise and products to respond to this marketplace. And right now, we just need to land the fish. And we want to stay focused. And we've always talked that we were going to carve out a niche that we could own. and we believe that this is the place to do it. So we aren't going to get distracted. It's about execution and really keeping our eye on the ball, which we believe is going to be a good market for us and a very profitable market.

One of the comments I just make on that is I go back to the economics. It's just when you get a market like this, it's got a lot of tailwind. The economics justify, and the numbers on them are very impressive, what happens to these companies and their profitability. And then, fortunately, it's where we're really good. One of the customers I was at said, I'm so excited about using your products. I'm tired of going and babysitting our products every week as they're rattling apart. It's just a truck is not a data center building.

It's a very different environment.

And we'll go next to Brian Kisslinger of Alliance Global Partners.

Great, thanks. In terms of business development trends, how have contract wins tracked for both AI transportables and million dollar deals in the March quarter since we're basically done. And then you mentioned the 29 pieces of business that are pending. Have you been given an intent to award notice that just awaits signatures? I'm curious what those 29 actually represent or they just pipe one.

So on the

On the current quarter wins, we're, what, two months away from announcing that, so we'll... But you're six days away from the quarter being done, right?

We don't usually provide the data ahead of time. That's why he's looking at me, and so I'm saying, you know, let's address it at the next call, which will be in two months. We can just tell you the activity is very strong.

So how about the 29? Is it 29 you've received a Pinto award, or 29... that you've been bidding on that you are looking forward to hearing about contract awards?

Yeah, there's 29 pending wins as we went into this year. Those pending wins are all over a million dollars within four years. And of those, 15 of the 29 are AI transportables. So the percentage of AI transportables has grown as we're targeting this market for the last year. So that's the dynamic in the pipeline.

But the definition, what is the definition of pending?

There's a pending win. You've won it already? You just need a signature?

So we tend to be pretty conservative when we claim a win. For example, we're shipping some products to autonomous truck guys and we haven't even claimed there's a win. They're still in the pending win category. But what it basically is is that the If we haven't claimed it and it's in that category, it means we have a confidence of at least 60% that we will close it. Beyond that, we have target accounts, we have opportunities, we're engaged with a bunch of people, but that doesn't go in that bucket yet.

So it's like a qualified pipeline with a high degree of winning.

Yeah, I mean, if we looked at all opportunities, it's hundreds of millions of dollars worth of opportunities that we're looking at. you know, that they could be anywhere from the 60% to, you know, 5%, where it's a long shot.

Yep, okay. My other question, you talked about, you provided an answer, yes, you're always having issues with the supply chain, managing inventory, you're investing $2.5 million. Specifically, has the issues with the supply chain, did it lead to lower margins in any way? and just talk about how you're able to pass along any costs for increased supplies that are being charged to you.

In general, we're trying to pass the expenses on to the customer, but sometimes there's a lag effect to that and different dynamics. So there's no doubt supply issues have impacted our margins. We try to minimize it, but it's not as material of a number as is the next thing that we talked about.

Thank you.

Thank you.

And we have no more questions. I'd like to turn the conference back to our speakers for closing remarks.

Thank you, Jenny. And thank you, everyone, for joining us today. Thanks again. We continue to believe that the best is yet to come, and we look forward to meeting with you again in March. Well, it should not say May. March says on my sheet it should be May, and reporting our progress as we pursue the many opportunities ahead. In the meantime, please continue to stay safe and healthy, and feel free to reach out to John, Jim, or myself anytime. Jenny, go ahead and wrap it up.

Thank you. Now before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. One Stop Systems cautions you that statements in the presentation are not a description of historical facts or forward-looking statements. These statements are based on company's current beliefs and expectations. Such forward-looking statements include those regarding the company's expectations for revenue growth generated by new products, design wins, or M&A activity. The inclusion of such forward-looking statements and others should not be regarded as a representation by OSS that any of its plans will be achieved. Actual results may differ from those set forth in the presentation due to the risks and uncertainties inherent in our business, including without limitation. That the market for our products is developing and may not develop as we expect. Global pandemics or other disasters or public health concerns included COVID-19 in regions of the world where we have operations, customers, or source material, or sell products may affect such market. Our operating results may fluctuate significantly, which would make our future operating results difficult to predict and could cause operating results to fall below expectations or guidance. Our ability to successfully integrate the operation systems, technologies, product offerings, and personnel with acquired companies may prove difficult and adversely affect our financial results. Our products are subject to competition, including competition from the customers to whom we may sell, and competitive pressure from new and existing companies may harm our business sales, growth rates, and market share. Our future success depends on our abilities to develop and successfully introduce new and enhanced products that meet the needs of our customers. The likelihood of our design proposals becoming design wins is uncertain, and revenue may never be realized. Our products fulfill specialized needs and functions within the technology industry, and such needs or functions may become unnecessary, or the characteristics of such needs and functions may shift in such a way as to cause our products to no longer fulfill such needs or functions. New entrance into our market may harm our competitive position. We rely on the limited number of suppliers to support a manufacturer design process, and if we cannot protect our proprietary design rights and intellectual property rights. Our competitive position could be harmed or we could incur significant expenses to enforce our rights. Our international sales and operations subject us to additional risks that can adversely affect our operating results and financial condition and we fail to remedy material weaknesses in our internal controls or financial reporting. We may not be able to accurately report our financial results. and other risks described in our prior press release and in our filings with the Securities and Exchange Commission, SEC, including under the heading risk factors in our annual report on Form 10-K and any subsequent filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the conference call, and we undertake no obligation to revise or update this information to reflect events or circumstances after this date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Before we end today's conference, I would like to remind everyone that this call will be available for replay starting later this evening through April 7, 2022. Please refer to today's press release for dial-in and replay instructions available via the company's website at ir.onestopsystems.com. Thank you for joining us today. This concludes our conference. You may now disconnect.